Tackling the fiscal future

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Time was, Massachusetts seemed to undergo alternating periods of fiscal famine and feast. The economy would slump, revenues would tail off, and state government would struggle through a couple of lean years. That often meant budget reductions, and sometimes spelled tax hikes.

But when recovery came, it was generally a strong one. Then revenues would come flowing in again.

That’s not the way it has seemed in the last decade or so, and particularly not in this slow-moving recovery. As we saw this week, when Governor Patrick announced a plan to close an estimated $540 million hole that has emerged in the current budget, fiscal problems persist.

You see it in this financial fact from Administration and Finance chief Jay Gonzalez: On a real dollar basis, the state will realize about $2 billion less in revenue in this fiscal year than was the case in fiscal 2009 — and that’s factoring in an additional $1 billion from the sales tax increase.

Cities and towns, meanwhile, are feeling the same pinch, in part because pain is passed down from the state.

Unrestricted local aid, state-sent dollars that localities can use for whatever they like, is down $416 million, or 32 percent, since 2008, reports Geoff Beckwith, executive director of the Massachusetts Municipal Association.

Nor are the budgetary challenges likely to end anytime soon. Or to put it another way, those expecting a return to the sort of revenue riches Massachusetts saw in the mid-1980s and then again in the mid-to-late 1990s — inflows so strong they allowed for both tax cuts and program expansions — are apt to be disappointed.

Policy makers can’t afford to take their focus off cost-savings.

One can see the problem through a different prism on the employment front. Moody’s Analytics predicts that the state won’t return to its 2001 employment peak of about 3.4 million jobs until 2015. After that, an aging population will make job growth a problem.

“Federal deficit reduction, a more slowly growing national economy, an aging workforce, and several other factors will produce a new permanent reality of tight state finances even in good economic times,” says Michael Widmer, president of the Massachusetts Taxpayers Foundation.

Indeed, here’s what passes for long-term budgetary optimism in the Patrick administration. “If we manage responsibly and address our biggest fiscal challenges, we will be able to maintain the level of programs and services we have today,” says Gonzalez.

Which means that policy makers can’t afford to take their focus off cost savings. The state has had some important successes on that front in recent years. In particular, granting municipalities the same power the state has to modify their health plan offerings has led to very significant savings.

A similar issue that must now be addressed is the cost of health care benefits for retired public employees. In this state, the public sector pays a generous amount for both Medicare supplemental plans for retirees and for health plans for those who retire before they are eligible for Medicare. What’s more, public employees, including part-timers, qualify for those post-retirement benefits after just 10 years on the job. All that has led to a huge unfunded liability for cities and towns; as with municipal health care reform, any realistic solution will require legislative action.

It’s also time to look again at competitive service delivery. That is, letting private companies compete to deliver services now performed by public-sector workers. On the state level, that would mean repealing the so-called Pacheco law, which essentially shut down efforts at privatization.

Deep-sixing Pacheco would obviously be anathema to the public employee unions. But until you know how much the private sector would charge to deliver a service, you don’t really have an accurate idea of what it really should cost. If the state can get a job done or a service performed more cheaply by contracting out, it can use the savings to bolster services in other areas.

Finally, regionalization is ripe for exploration. Some communities are already sharing public works resources. More significant savings could likely be achieved if neighboring communities consolidated their fire departments.

Mind you, these are politically thorny endeavors. Yet with fiscal difficulties stretching into the middle distance, voters may increasingly come to appreciate political leaders determined to give them maximum bang for their buck.